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Issue #1487      2  February 2011

No to budget cuts, levy

Cut the military budget

Prime Minister Julia Gillard chose the National Press Club last Thursday to announce budget cuts and a one-year levy to fund the rebuilding of flood-damaged infrastructure in Queensland, Victoria and Tasmania. Gillard’s speech lacked substance, was cliché-ridden and littered with populist appeals to “mateship” and what is “Australian”. The title of her speech, “I see what needs to be done and I will do it”, reflected her egotistical approach. Gillard’s way is based on blind faith in the “markets” (private sector). She stubbornly refused to budge from the government’s commitment to return the federal budget to surplus in 2012-13.

Retailers are screaming, the “Sale” signs are up everywhere but shoppers are thin on the ground. (Photo: Anna Pha)

Two thirds of the estimated $5.6 billion being raised will come from budget cuts to housing, environmental and infrastructure programs and the other third from a 12-month levy on personal incomes over $50,000. The levy does not apply to company profits. The next round of corporate tax cuts will go ahead on July 1. The defence budget remains sacrosanct.

The levy is a tax on personal income with two marginal rates – 0.5 percent on taxable income between $50,001 and $100,000 and 1.0 percent on income over $100,000. (No tax on the first $50,000 regardless of income.) It is limited to the 2011-12 financial year and is expected to raise $1.8 billion. People affected by the floods are exempt from the levy. The tax will hit many full-time workers. Average full-time adult earnings are $1,312 per week – $68,224 per annum.

Gillard claims the economy is “strong”, with “strong wages growth”. The GDP figures might look good, mining exports might be strong, but retail, manufacturing, tourism, overseas student enrolments and other areas are still recessed. Retailers are screaming, the “Sale” signs are up everywhere but shoppers are thin on the ground. Electricity, water, rent and food price rises have seen many family budgets strained. Workers do not need to pay more tax.

Environmental cuts

Cuts to environmental programs include:

  • solar and carbon capture storage schemes
  • solar hot water rebate
  • solar homes and community program
  • green cars innovation program
  • liquified petroleum gas (LPG) conversion subsidy
  • $2,000 subsidy for pre-1995 cars that are traded in for more energy efficient cars.

The cuts reflect the attitude of the government to climate change. Gillard treats the floods as a one-off, extreme event. She does not acknowledge any link between the extreme weather conditions in Australia or around the globe with climate change.

Gillard told Alex Kirk on the ABC AM radio program (28-01-2011), “Well, I’m very determined that in this Parliament we will get a price on carbon, and that’s the most economically efficient way of dealing with carbon pollution, and given that economic efficiency it is a better way than some of the programs that I determined should be axed or re-profiled to make way for the spending we need to rebuild the nation.”

Climate Change Minister Greg Combet makes no pretence of the government’s lack of will to take serious action. He told the Australian Financial Review that climate change was an environmental problem with an economic solution. “I approach a lot of policy issues from the standpoint that the markets are the most efficient allocator of resources.” The government is using the floods as an excuse to cut programs to which it has no commitment, but was forced to adopt to win government.

This retreat is consistent with the government’s refusal at the recent Cancun climate change talks to commit to a serious target for emission reductions and with its attempts to kill the Kyoto Protocol.

Calls by the Greens and several Independents for the government to establish a natural disaster fund were rejected outright by Gillard.

“It does a disservice to all those tragically affected by these floods … to keep insisting that these are one-off events and ignore the role of climate change,” Greens Senator Christine Milne said. Independents Tony Windsor and Rob Oakeshott also expressed support for a national natural disaster fund.

“Extreme climatic events should be covered by a standing fund rather than have an event happen and then trying to work out what to do about it,” Tony Windsor said.

Housing targeted

The National Rental Affordability Scheme which provides rental subsidies for new homes and the regional housing program are to be cut. According to the government’s own National Housing Supply Council, the shortfall nationally by 2014 will exceed 300,000 homes. Rents are predicted to continue rising in 2011 by an average of seven percent in the capital cities. Already the median rent for a home in Sydney is $450 per week and $520 in Darwin. How can a low paid worker on $500 or $600 afford a home.

The floods provide a great opportunity for the government to build affordable public housing, but no such plans are on the agenda.

Funding will also be found by deferring some regional community programs and state infrastructure (unspecified). Gillard argues this will free up skilled labour which is in short supply for rebuilding infrastructure. This is one the few points that Gillard provides any rational justification for. Relocation assistance will be made available for up to 4,000 unemployed and others on income support to move to Queensland for work in reconstruction. The government is also looking to fast-tracking the training of “qualified” trades people which is a recipe for disaster - trade unions will have a fight on their hands to protect industry standards.

The government is planning to fast track the entry of temporary (457 visa) workers from overseas. This poses a serious challenge to workers and the trade union movement, as employers will attempt to use them to undermine wages and working conditions and de-unionise the workforce.

The insurance industry has come out strongly against a single cent of government funding being used to assist people and small businesses affected by the floods. They told the government to use the levy in a way that will encourage people to take out private insurance. Gillard appears to be going along with them. Government funding will be restricted to “the restoration and replacement of essential public assets and long-term economic infrastructure”. The focus is on road, rail, bridges, etc to transport coal and agricultural products.

Relief of individual hardship is left to public donations to relief funds, philanthropy and the “generosity” of insurance companies. “I am very proud of that helping hand of mateship”, Gillard said as though it alleviates the government of its responsibilities to society.

The insurance companies strongly oppose the setting up of a natural disaster fund saying it would create a “moral hazard” and people might not see the need to insure!

Gillard’s obsession with a 2012-13 budget surplus reeks of the extreme economic fundamentalism of Thatcherism and of political opportunism - so she can go to the electorate in 2013 as the only Western government to be running a surplus budget.

Alternative funding sources

There is no rational reason to stick to the 2012-13 deadline. There is nothing wrong with running a deficit, the key question is the reason for and the manageability of the debt. The debt is relatively small and rebuilding basic infrastructure after a natural disaster of such magnitude is a sound reason.

Billions of dollars could be shaved from the military budget. For example, the cancellation of three Air Warfare Destroyers equipped with SM-6 long-range anti-aircraft missiles (range of 370 kilometres) would save more than $7 billion. Another $3 billion could be saved cancelling the Amphibious Vessel project.

Billions more could be saved by abandoning plans for 24 (or more) new naval combat helicopters equipped to fire air-to-surface missiles; 46 new MRH90 helicopters equipped with infrared systems; 20 Offshore Combatant Vessels; a large strategic sealift ship to move stores, equipment and personnel; and six new heavy landing craft that were announced in its 2009 Defence White Paper. These military purchases serve to escalate military tensions in the region and cutting them would not pose any threat Australia’s security.

More money (and lives) could be saved by pulling Australian forces out of the US’s dirty war in Afghanistan.

The government could stand its ground on the mining industry super profit tax, introduce super profit taxes in banking and insurance industries. There is no shortage of money, no need for budget cuts or the levy which still have to pass through Parliament. Opposition leader Tony Abbott has expressed outright opposition for the sake of opposition and called for cutting the national broadband network.

It remains to be seen how negotiations with the Australian Greens and Independents go. The Greens have raised the idea of deferring the corporate tax cuts and have strong concerns over the government’s attitude to the environmental program cuts and its rejection of a natural disaster fund.  

Next article – Film reviews – The King’s Speech and Black Swan – Two very different films

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